Do you picture multi family homes when you think about cash flow investing? If not, we’re here to tell you it’s time you do.
What Is Cash Flow Investing?
So before we get into multi family real estate, let’s first talk about what cash flow investing actually is. In its simplest form, it’s any investment that provides you with periodic cash flows and generates an income. So at some interval of time, you’re receiving regular cash flow from investing activities. A good example is dividends with stocks.
Related: The Best Income Producing Assets in Real Estate Investing
Cash flow investing in real estate is the same idea. Buying residential investment property is one of the best ways to make money with cash flow investing. The rent payments you’d receive from your tenants would make up your cash flow from your real estate investment. Of course, there are expenses included in the cash flow calculation. Let’s talk more about that.
How to Calculate Cash Flow
The simple form of the cash flow calculation is quite straightforward:
Cash Flow = Total Income – Total Expenses
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Total Income
In the case of rental properties, total income is usually the same as rental income. However, sometimes there are sources of income other than rent payments for a rental property. These other income sources may differ from month to month. For example, one month you might need to take into consideration late fees or application fees if you have new tenants. Another example is laundry income. When buying an investment property, it’s always important to list out all possible sources of income to ensure a thorough cash flow analysis.
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Total Expenses
There is a list of rental expenses involved in operating a rental property. Of course, just like total income, your total expenses could differ from month to month. A few of the usual expenses to keep in mind are repairs and maintenance, vacancy rate, property management, property taxes, and mortgage payments.
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Positive Cash Flow
Whether you’re searching for multi family homes for sale or any other type of rental property for sale, you always want to look for positive cash flow rental properties. Positive cash flow is key in cash flow investing because this is the ultimate goal of this investment strategy. Positive cash flow is achieved when total income exceeds total expenses. This, of course, is always desirable since it means you’re making a profit and this investment property is performing well.
Related: How to Find Positive Cash Flow Properties
Searching for a quick and easy way to calculate cash flow for your rental properties? Just follow the path of all the other great real estate investors and use a cash flow calculator. It’s basically a rental calculator for investment property that finds your investment’s cash flow along with many other important return on investment metrics. Check out Mashvisor’s investment property calculator for faster and smarter real estate investment decisions. To learn more about our product, click here.
Cash Flow Investing with Multi Family Homes
Investing in multi family homes is a great way to build your investment portfolio. It’s also a great way to really boost your income whilst also reducing vacancy rates. This combo is exactly what any real estate investor should look for in cash flow investing. Many investors actually begin searching for multi family homes for sale because they want a serious boost in their cash flow. Of course, this level of cash flow differs based on the type of multi family home you invest in.
A multi family home is composed of multiple separate dwelling units that are contained in one or several buildings in a single complex. So of course, there are different levels of multi family real estate investing. Here are the types:
- Duplex: One building divided into two separate homes, usually side by side.
- Triplex and Quadplex: These buildings are similar to a duplex but instead of two homes, a triplex has three units and a quadplex has four units.
- Townhouses: Have multiple floors and are commonly attached to another townhouse. There can be a number of townhouses attached side-by-side, or stacked, each with their own private entrance.
- Apartment Building/Condominium: These two are the most common type of multi family housing and what people usually think of when they think multi family real estate. These buildings hold multiple units on multiple floors.
Related: What Are the Best Locations for Cash Flow Properties in the US Real Estate Market?
Why Cash Flow Investing in Multi Family Homes Is Smart
There are many benefits that come from investing in multi family homes. Here are just a couple:
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Greater Cash Flow
The most obvious of them all is the serious boost in cash flow when you invest in multi family homes. Why bother with cash flow investing in a single family home and only get a single monthly income? The smarter way to cash flow investing is through multi family real estate where you can generate multiple forms of monthly income.
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Larger Tenant Pool
Because you’re providing more housing units with a multi family home, you’re widening your potential pool of tenants. This leads to less risk when cash flow investing because, unlike single family homes where you lose total rental income when the home is vacant, multi family homes house multiple tenants so you’ll still be generating income even if there are vacant units. This alleviates the total economic loss for real estate investors.
Related: Understanding Multi-Family Investment Property Returns and Benefits
There are definitely many more benefits that come with cash flow investing in multi family properties such as long term wealth building. If you’re interested in multi family homes and find yourself wondering, “How can I find profitable multi family homes for sale near me?”, you’re going to need to conduct a thorough multi family real estate investment analysis. You can do that with Mashvisor’s investment property calculator. This is the second time we mention this tool, and there’s still so much more it can do. Try it out! To start out your 14-day free trial with Mashvisor, click here.
